[BN] the know

End of incentives hurt SBA loans last year

Banks offered fewer for fewer dollars overall

Charles Lewis/Buffalo News file photo
In this file photo, Carissa DiRado, left, of the Consumer Credit Counseling Service of Buffalo, talks with Therese Smith, of Buffalo, during the SBA Straight Talk event at the Buffalo Convention Center.

Government-backed small-business lending locally took a big tumble during the last fiscal year, plunging 28 percent in dollars and 24 percent in the number of loans, after special fee waivers and other federal incentives expired.

According to the latest figures from the U.S. Small Business Administration, 29 institutions made 609 loans totaling $98.09 million in Buffalo and Rochester in fiscal 2012, which ended Sept. 30. That’s down from 33 lenders, 804 loans and $136.19 million in fiscal 2011.

The loans came under the federal agency’s primary 7(a) program, in which the government provides guarantees of up to 85 percent of the principal amount of a loan.

A separate program, for development loans to buy real estate, equipment or other fixed assets, yielded 37 loans for $22.83 million in the two cities in fiscal 2012. That’s down 36 percent and 39 percent, respectively, from 58 loans for $37.37 million in the prior year.

In both programs, M&T Bank dominated the rankings, overwhelming its competitors. M&T is the No. 6 SBA lender nationwide, No. 3 east of the Mississippi, and No. 1 in Buffalo; Rochester; Syracuse; Philadelphia; Wilmington, Del.; Baltimore; Binghamton; and Washington.

“This is the first year since the onset of the recession that we did not offer any incentives to our lenders to utilize our programs,” said Franklin J. Sciortino, director of the SBA’s Western New York district office. “When one considers the general economic conditions and uncertainty caused by recent changes to our local banking landscape, we are very pleased to see our lending volumes returning to pre-recession levels.”

All told, the lending activity in the agency’s Western New York District helped about 430 businesses and supported 8,505 jobs, SBA said. That includes 1,815 new positions and 226 business startups.

Fifteen loans were made to exporters, for $4.77 million, and 32 loans to businesses owned by veterans, for $6.24 million.

“A vibrant small-business community leads to a healthy and strong community overall,” Sciortino said.

Nationwide, meanwhile, lenders across the country approved 44,377 loans for $15.15 billion in fiscal 2012. That’s down 17.4 percent and 22.9 percent, respectively, from 53,706 loans for $19.64 million in fiscal 2011. Loans were also down 16.2 percent from fiscal 2010, but the dollars were up 20 percent.

On the other hand, the number of certified development company loans were up 18.6 percent, to 9,471 loans for $6.7 billion, a nearly 40 percent hike in the amount.

Small businesses are widely considered the engine of the U.S. economy, making up 99 percent of all businesses, employing about half of all U.S. workers and generating more than two-thirds of all new jobs. So their health, spending and growth is seen as a barometer.

But the financial crisis took a toll on many small businesses, which found their access to credit sharply curtailed because loss-weary banks had sharply tightened underwriting and reined in lending to preserve capital. At the same time, businesses cut back their own spending and growth, preferring to spend only the cash they had on hand rather than take more risk by borrowing.

As a result, small-business lending plunged along with the economy. As part of federal economic stimulus legislation passed when the recession hit, the SBA waived loan fees to borrowers, raised guarantee limits and provided other incentives to encourage more lending by banks and borrowing by businesses. And SBA loan figures soared again, until the SBA ran out of money to support the incentives, and Congress allowed them to expire. That led to the big drop-off in lending as activity returned to what officials say is a more normal level.

A new report by the U.S. Chamber of Commerce found 83 percent of small businesses in its third-quarter survey will not hire next year.

“Our lenders recognize the importance of using SBA in tough credit times to provide needed capital to small businesses,” Sciortino said. “The modifications ... enhance our ability to increase loan volume from our small lenders.”

By lender, Buffalo-based M&T posted the highest dollar volume, at $26.81 million, for the 18th straight year, though that’s down 42 percent from $46.19 million in fiscal 2011. Cross-town rival First Niagara Financial Group loaned $14.13 million, up 28.5 percent over $11 million a year ago.

“Lending to small businesses remains a priority at M&T Bank, and despite a temporary decline in demand for SBA programs after the incentives expired, M&T’s total small-business lending increased by $196 million over the last year,” said Janet Coletti, M&T senior vice president for business banking.

Evans Bancorp of Hamburg came in third by dollars, at $11.44 million, up 3.2 percent from a year ago. It was followed by Five Star Bank, part of Warsaw-based Financial Institutions, with $4.13 million.

By number of loans, M&T also took the top spot, with 227 loans, though that’s down 16.8 percent from a year ago. First Niagara was second with 81 loans, though that’s up 19 percent from 68 in 2011. Five Star, which came in third with 78 loans, fell 39 percent from 127 last year.

Evans was fourth, with 40 loans, down from 57, followed by Cleveland-based KeyCorp with 37 loans for $2.67 million and Bank of Castile with 28 loans up from 23. Key was down 16 percent and 56 percent, respectively, from 44 loans for $6.1 million.

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M&T also led in development loans, with 12 loans for $5.48 million, compared to six loans for $1.9 million for Evans, which was second in number, or two loans for $2.65 million for ESL Federal Credit Union in Rochester, which was second in dollars.

First Niagara led for the most loans to veteran-owned businesses, with eight loans for $808,000, but Five Star was second in number and first in dollars, with six loans for $2.36 million. M&T also had six loans.

And for loans to exporters, Evans led in number, with six loans for $1.43 million, while Five Star led in dollars, with two loans for $1.65 million. </INLINENOTE>